Sovereign Risk - Boeing
December 8, 2003
During the Cold War, a senior Pentagon official observed over dinner that the defense industry was the least competitive sector in the U.S. economy � being comprised of near-monopolies � but that in the Soviet Union, manufacturers of military hardware were the most competitive parts of an otherwise state-run economy.
The existence of arms making monopolies and the corrupt culture of procurement that exists in the three major U.S. military services is a cautionary tale for those who value political and economic freedom. The staggering amounts of money involved in U.S. defense contracts and the lack of transparency involved in the purchasing process breeds corruption inside the Pentagon apparatus and thus creates risk for any private company that pursues such business � especially large companies like Boeing (NYSE:BA).
Arizona Republican Senator John McCain told the New York Times last week that the Pentagon is the problem: �This had already been revealed to be a corrupt if not terribly flawed process, and here they were trying to press ahead. Boeing is making an effort to clean up their act, but the Air Force and the Pentagon remain steadfast in their pursuit of a massive ripoff of taxpayer dollars."
We hear that the revelations of wrongdoing made regarding BA and its counterparts inside the Pentagon �read like a bad novel� and that the abuses already exposed are only the tip of the proverbial iceberg. Early in the New Year, three Senate Committees � Armed Services, Government Operations and Commerce, will hold hearings on the BA tanker deal and the �revolving door� at the Pentagon.
Significantly, no hearings are planned in the House, where the BA tanker deal was approved in less than 24-hours with no questions asked. Indeed, members of the House are so compromised regarding the economic attraction of the new BA tanker project, right up to Speaker Dennis Hastert (R-IL), that they barely attempt to disguise their naked advocacy of the ill-advised purchase, even today.
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